Traffic jams, government paperwork, bathroom drains, make-ready departments; no matter what the bottleneck, it can cost you and your dealership time and money. Time and money are two things that everyone wants to hold on to, so speed to market is critical for used car margins.
So, how do we identify and measure bottlenecks in our recon process? By far the most important number we look at is the deviation in our process. This tells us the variability in our make-ready department. Said another way, how streamline is your process.
To visualize this, think of a water hose as your recon process. Water can be pumped into it as much as possible but there are two limiting factors to the rate of which that water comes out the other end.
If you were to pick up a water hose and water wasn’t coming out fast enough, what is the first thing you do? You look for kinks in the hose. That’s your process deviation. If anyone of your steps is higher than 24-hour deviation then you have issues.
The second factor is the size of the water hose. How wide is it? This is capacity. But as you can see, you can’t speak about capacity until you get your kinks out of the hose. Once that’s done then you can work on capacity.
Deviation measures the spread of your process. Let’s assume your average speed-to-market is 5 days and your process deviation is 4 days. That means a vehicle in your recon process could take 1-9 days to get to market. Not very tight. However, if your average speed-to-market is 6 days but your process deviation is only 1 day, then this means vehicles in your process take between 5-7 days. Even though in example two your average speed to market is one day higher, it’s tight. It is not all over the board like the first example, which can cost you time and money. At ReconVelocity, we shoot for a sub 48-hour deviation.
To make business decisions, we follow this procedure.
Look at each step in your process. If your deviation is good, but the average time in recon is still high then that means you have a good process but you don’t have enough capacity and, therefore, need to add more capital to increase output. Capital can take the form of additional labor or equipment. But now you can put a dollar amount and calculate your return on investment accurately.
Here is some quick math:
Your average holding cost is $50 per day per vehicle, and your detail department is taking 3.6 days to get a vehicle to the frontline. Now, take the number of vehicles in your recon process multiplied by your average holding cost, multiplied by the difference between your current time in step versus your goal.
Let’s look at an example.
- Average holding cost: $50 (estimated)
- Number of vehicles in recon: 103
- Current: 3.6 Days
- Goal: 1 Day
- Difference: 2.6 Days
Total: $50*103*2.6 = $13,390
Currently, your detail department alone is costing you $13,390. Now you can have a business discussion on whether you should add more detailers, wash bays, power washers, et cetera. What would be the cost and the increase in capacity?
Knowing holding cost terminates the guess-work, allowing you to maximize profits sensibly.